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Unconventional Resource opportunities in australasiaFractured shale plays are emerging across the United

States and around the world. As the largest acreage

holder of Whangai-Waipawa shale in New Zealand,

TAG Oil brings its technical and operational expertise

to bear in unconventional gas and oil exploration.

if it’s unconventional, it could be in play

in response to the charge that ‘easy oil is gone,’ the exploration

and production industry is increasingly turning to shale…and

the technology of hydraulic fracturing…to transform uncertain

reservoirs into commercially viable operations.

Technology-driven, unconventional resource plays—particularly projects in search

of gas or oil production from fractured shale—are sprouting up across the United

States and around the world. As extraction technology improves, areas once

thought to contain resources that would never see the light of day are today

considered to be some of the most prolific and popular in the industry. Why have

these unconventional reservoirs remained undeveloped, and what’s changing?

Shale, which consists mainly of consolidated clay-sized particles, is the Earth’s

most common sedimentary rock. It looks like the slate of a chalkboard and gener-

ally has ultra-low permeability. In many oil fields, shale forms the geologic seal

that retains the oil and gas within conventional producing reservoirs, preventing

hydrocarbons from escaping to the surface. In a handful of basins, however, lay-

ers of shale—sometimes hundreds of feet thick and covering millions of acres—

are both the source rock and a reservoir sequence for oil and gas. These shales

have one thing in common: they are rich in organic carbon.

“advanced technologies have

been behind the logic-defying

trends in e&P, allowing economic

access to domestic resources

that are concentrated in deeper

formations, tighter zones,

deeper water, more sensitive

environments, and increasingly

more unconventional settings.”

U.S. Department of Energy

Fractured Shale Opportunities in Australasia | August 2008 page 2

Unconventional oil: how big is the prize?

Early low-permeability wells were consid-ered failures because they did not naturally produce at commercial rates. Technology simply wasn’t up to the challenge, making the oil and gas held in these unconventional sources much more difficult—and therefore more costly—to develop than conventional oil and gas resources. But reduced oil sup-plies, regional tightening in gas supplies, continued rising demand for oil and gas on a global scale, and advancements in drilling and completion technology have resulted in an ever-increasing interest in tapping these unconventional oil and gas reserves.

A recent study by leading oil and gas research firm, Wood Mackenzie, argues that the global unconventional hydrocarbon prize is potentially enormous. In a report entitled “Unconventional Hydrocarbons – The Hidden Opportunity,” Wood Mackenzie estimates nearly 3.6 trillion barrels of uncon-ventional, undeveloped oil equivalent. That is triple the 1.2 trillion barrels of conventional oil considered recoverable from conventional oil reserves. And, in the Energy Information Association’s long-term reference case fore-

cast, production from unconventional sources are anticipated to grow to 5.7 million barrels of oil per day in 2025, up from 1.8 million barrels of oil per day in 2003.

Unconventional gas: even bigger rewards

As consumer demand for cleaner burning fuels grows, gas becomes an even more at-tractive long-term opportunity. Based on its lower carbon footprint, it’s clear that every cubic foot of gas brought to market can be sold. At the end of 2006, proven reserves of conventional gas in the ground stood at around 6,300 trillion cubic feet. When po-tential unconventional in-ground gas sources

taG oil’s

unconventional

efforts are aimed

at tapping the

potentially vast oil

and gas resources

locked in fractured

shales. Recent

completion tech-

nologies and

success in compa-

rable formations

in the U.S. suggest

that extraction and

recovery of this very

major resource may

lie within reach.

Dave Francis and Alexandra Johansen ignite an East Coast Basin gas seep.

Growth in Barnett Shale Production

1997 1998 1999 2000 2001 2002 2003 20040.0

0.25

0.50

0.75

1.00

1.25

Gas

Pro

duct

ion

(bill

ion

cubi

c fe

et p

er d

ay)

Advanced drilling and completion technology is responsible for the dramatic production increase in East Texas’ Barnett Shale and other developing fractured shale plays which share similarities to New Zealand’s Waipawa-Whangai shales.


are added to these estimates, the future of gas in homes and industry suddenly becomes a vast investment opportunity. In a 2005 presentation, IHS Energy estimated untapped unconventional gas reserves alone at 90,000 trillion—that is 90,000,000,000,000,000—cubic feet.1

taG oil brings new energy to an ancient resource

With 2.2 million net acres of permit hold-ings, TAG Oil is the largest acreage holder of Waipawa-Whangai oil and gas shale in secure, stable New Zealand. Employing its considerable technical and operational experience, the company has taken the leadership role in exploring and developing these high-potential shale beds in the largely untapped East Coast Basin of New Zealand, where the Whangai-Waipawa fractured shale formations are widespread and most thickly developed.

This project represents an exciting oppor-tunity to unlock a very major unconventional oil and gas resource. The Waipawa-Whangai

formations together have always been viewed as high-quality source rock, though they were never considered to be producible until the success of the Barnett Shale in Texas. Extrac-tion success there, where reserves are esti-mated by the U.S. Geological Survey to be in excess of 25 trillion cubic feet, has provided a model for shale exploration throughout the world. And continuing developments in drilling capabilities and hydraulic fracturing technology support the premise that unlock-ing a major reserve in the Waipawa-Whangai shale is well within reach.

the east coast shale

play, where the

Waipawa-Whangai

shale system is most

widely and thickly

developed, represents

one of the most

important acreage

positions in the his-

tory of australasian

shale exploration.

Oil seep in TAG Oil’s East Coast Basin permit.1Ken Chew, VP of Industry Performance and Strategy, IHS Energy: “World Oil and Gas Resource and Production Outlook,” 28 June 2005.

TAG Oil holds two permits in New Zealand’s East Coast Basin, covering 2.2 million acres.

east coast Basin

Barnett data: GNS NZ Gov’t, Field, Brad (2006), Curtis (2002), Hollis et al (2005) - Bakken Data: Flannery, Jack; Kraus, Jeff; 2006 Search and Discovery

Article #10105; Integrated Analysis of the Bakken Petroleum System, US Williston Basin - Waipawa, Whangai Data; GNS, NZ Gov’t; Francis, David; 2007

Reservoir Analysis of Whangai Formation and Waipawa Black Shale, PEP’s 34348 & 38349, onshore East Coast Basin, Core Labs report 2007-12-18

comparison of the Waiapawa-Whangai to the Bakken and Barnett Shales

Unit Bakken Waipawa Barnett Whangai

Depth (m) 2700 - 3500 0 - 5000 1980 - 2590 0 - 5000

Net Thick (m) 10 - 50 10 - 60 15 - 60 300 - 600+

BI-I Temp °C 80 - 110 70 - 110+ 93 70 - 110+

TOC % 1.1 - 12 3 - 12 4.5 0.2 - 1.7

Vit Refl R 0.3 - 1.2 0.3 - 0.4 1.0 - 1.3 0.4 - 1.4

Total Porosity % 8 -12 9 - 23 4 - 5 16 - 31

Reserves (mmcf / well) 100k - 1,500k TBD 80k - 1,500k TBD


The Waipawa Black Shale is a fractured, poorly bedded, organic-rich siltstone. Out-crop sampling indicates an average total organic carbon (TOC) value’s of 5% and average Hydrogen Index (HI) of 245 with maxima of 12% TOC and 550 HI, respec-tively. The formation occurs throughout TAG Oil’s East Coast Basin acreage and has

also been identified in other areas of New Zealand. The Waipawa Black Shale is normal-ly 30m or more thick and achieves a maxi-mum thickness of 70m in Southern Hawke’s Bay. The organic carbon is primarily of marine origin, although significant terrestrial organic matter is evident in some samples.

Potential reservoirs

include sandstones

of various ages

and porosities up

to 20% or more in

Miocene turbidite

fan sandstones

and shallow-

marine neogene

limestones.

Waipawa-Whangai Source Rock Potential

Whangai

Waipawa

Whangai

Waipawa

GOOD

GAS

8

6

2

4

HI5

0

10500

15 20 25

OIL

HI 05 0

HI 030

HI

510

VERYGOOD

OILANDGAS

POOR

FAIR

EXCELLENT

0 25 50 75 100 125 150 175 2000

100

200

300

400

500

600

Type III

Type IIType 1

OI (mg CO /g TOC)2

S2 (mg HC/g ROCK)

)%t

w( C

OT)

COT g/

CH g

m( IH

Source: Geological & Nuclear Science

This Hydrogen Index has been created from Waipawa-Whangai Formation outcrop samples. The results graphed help predict the Kerogen type of the samples, which are indicative of oil or gas as the hydrocarbon type associated with the Shale. In the case of the Waipawa-Whangai Formation this index suggests that the samples are predominantly Type-I Kerogens that are more oil-prone than gas.

This oil-rich Waipawa Black Shale in outcrop demonstrates the profuse internal fracturing within the formation.


the east coast Basin

is a cretaceous-

cenozoic fore-arc

basin situated across

the australian-Pacific

plate margin. Basins

of this type can be

prolific producers

of oil and gas, as

in indonesia,

california and

other active plate

margins worldwide.

the Waipawa-

Whangai Shale

System in particular

is comparable in

toc and oil and gas

maturity levels to

fractured shale plays

such as the Bakken

Shale in Montana

and the Barnett

Shale in east texas.

Waipawa-Whangai Source Rock Potential

Whangai

Waipawa

Whangai

Waipawa

GOOD

GAS

8

6

2

4

HI5

0

10500

15 20 25

OIL

HI 05 0

HI 030

HI

510

VERYGOOD

OILANDGAS

POOR

FAIR

EXCELLENT

0 25 50 75 100 125 150 175 2000

100

200

300

400

500

600

Type III

Type IIType 1

OI (mg CO /g TOC)2

S2 (mg HC/g ROCK)

)%t

w( C

OT)

COT g/

CH g

m( IH

The multiple fracturing systems observed in the Whangai Formation at the Gaddums Hill outcrop.

Source: Geological & Nuclear Science

Samples taken from the Waipawa Formation indicate high TOC values, indicative of good to excellent quality source rocks. Although the TOC values are lower in the Whangai than the Waipawa Formation, the immense thickness of the formation, up to 1500 feet in some areas, more than compensates for the lower values. In some instances, the two formations could work together as one system.

The Whangai Formation is a poorly bedded, siliceous or slightly calcareous mudstone, with localized development of greensand and well bedded calcareous facies. The formation is 300 to 600 m thick throughout much of the East Coast Basin. The basal and main Whan-gai facies, Rakauroa Member, has an average TOC of 0.8% in the western sub-belt, with maximum TOC values of 1.7% and 336 HI. Although its TOC content is lower than the Waipawa Black Shale, the Whangai Formation is heavily fractured and can be nearly twenty times as thick.

the science and art of hydraulic fracturingWith light sweet crude reaching more than $80/bbl and natural gas rising above $6/MMBtu in September, interest in develop-ing exploration and extraction technologies continues to grow.

Fracturing is achieved by using hydraulic pressure created by pumping fluid into open cracks in the shale, and by keeping these cracks open by injecting solid propping materi-als (proppants) along with the fluid pumped into the formation. The pumped fluid, under pressures of up to 8,000 psi, is enough to crack shale as much as 3,000 feet in each direction from the wellbore. And opening fractures in the shale is the key to good production.

Because of shale’s extremely low permeabil-ity, the best fracture treatments are those that expose as much of the shale as possible to the well bore. The greater the exposure, the faster the oil or gas will be produced.


A simple fracturing job may pump a mixture of water and sand into the well. The water creates the pressure to initiate the fractures, then carries the sand into the cracks as they grow. When the fluid pres-sure is released, the grains of sand hold the cracks open. Although water and sand are the cheapest fluid and proppant, they are not always the best. High-tech fracturing fluids are more viscous, and better able to maintain the proppant in suspension, allowing it to travel deeper into the fractures and reduce the amount of settling that occurs before the fractures close. Advanced designs for artificial proppants used in addition to sand also do a better job of holding open the cracks.

Real-world technology yields real gainsThe Bakken Shale play in the Williston Ba-sin, which straddles Montana, North and South Dakota, and dips up into Canada, now contains the highest-producing onshore field established in the lower 48 states in the past 56 years, according to the Department of Energy. Output at the Elm Coulee oil field in

eastern Montana alone is estimated to reach 200 million to 250 million barrels.

To date, over 600 wells have been drilled in the middle member of the Bakken Shale Formation, and 356 producers were pump-ing oil in Richland County as of August 2006. In the mid-Bakken play, which only began in December 2003, over 200 mid-Bakken wells have been permitted and nearly 100 wells were producing as of February 2007.

Because of new horizontal drilling and completion technologies, the potential recov-erable resource base for the Bakken Forma-tion is massive. A recently published study by USGS scientist Leigh Price provides estimates from 271 to 503 billion barrels (mean of 413 billion) of oil equivalent in place. If this bears out, it could increase the estimate of technically recoverable crude oil resources in the U.S. by billions of barrels. For perspec-tive, consider that the current estimate of all technically recoverable crude oil resources in the U.S., not including Bakken oil resources, is 174.67 billion barrels.

“Recent years’ dra-

matic changes in

technology are

making existing

energy reserves

stretch further while

keeping long-term

energy costs lower

than they otherwise

would have been.”

Testimony of Chairman Alan Greenspan before the Committee on Energy and Commerce, U.S.House of Representatives — June 10, 2003

Pumped fluid is enough to crack shale as much as 3,000 feet in each direction from the wellbore.

A 2500’ horizontal well with 10 staged fractures contacts over 400 times the amount of reservoir

than a conventional vertical well through the same formation.

the numerous opportunities of the east coast Basin

The East Coast Basin of New Zealand is a lightly-explored Cretaceous-Cenozoic fore-arc basin situated across the Australian-Pacific plate margin. Basins of this type can be prolific producers of oil and gas, as seen in Indonesia, California and other active plate margins worldwide. Thus far, only one well per 800,000 acres has been drilled in the en-tire East Coast Basin, and the great majority of these had significant oil and gas shows.

In addition to the unconventional poten-tial in the Waipawa-Whangai shale, TAG Oil’s acreage contains at least 50 known Mio-cene/Pliocene structural leads and defined prospects, many at fairly shallow depths. This translates to relatively low drilling costs, which enables TAG Oil to explore major up-side potential with limited financial exposure. Potential reservoirs include sandstones of various ages and porosities of up to 20% or more in Miocene turbidite fan sandstones and shallow-marine Miocene lime-stones. A recent independent technical assess-ment conducted by Sproule International Ltd. estimates the mid-case undiscovered resource potential* of the defined prospects to be in excess of 1.7 billion barrels of oil equivalent.*

encouraging acreage, whether pursuing conventional or unconventional means

Whether pursuing oil and gas in the Waipa-wa-Whangai fractured shale, or exploring for conventional oil and gas, this lightly explored basin presents a unique opportunity for first movers.

Williston Basin Proven Reserves

2005200420032002200120001999199819971996199519940

100

200

300

400

500

600

700

800

900

Cru

de O

il Pr

oved

Res

erve

s, M

illio

ns o

f Ba

rrel

s

The middle member of the Bakken Shale formation is responsible for the explosive increase in Williston Basin oil production over the past few years.

taG oil’s

strategy centers

on new Zealand,

Papua new Guinea,

and the timor Sea,

where our leadership

team has extensive

experience and a

proven track record

of success.

*The term barrels of oil equivalent “boe” may be misleading, particularly

if used in isolation. A boe conversion ratio of six thousand cubic feet (6 mcf) to one barrel (1 bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The term “undiscovered resources” are those quantities of oil and gas estimated on a given date to be contained in accumulations yet to be discovered. There is no certainty that any portion of the undiscovered resources will be discovered and that, if discovered, it may not be economi-cally viable or ethnically feasible to produce.

taG oil ltd. (Corporate Office)1050 Burrard StreetSuite 2901Vancouver, BC V6Z 2S3Canada

Tel: 1.604.609.3350Fax: 1.604.682.1174

taG oil ltd. (Technical Headquarters)

233 BroadwayP.O. Box 262Stratford 4332Taranaki, New Zealand Tel: 06.765.6643Fax: 06.765.6654

TSX-V: TAO www.tagoil.com

Forward-looking Statements Certain statements contained in this document constitute forward-looking statements. These statements relate to anticipated future events or TAG Oil’s future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. TAG Oil believes that the expectations underly-ing those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and therefore such forward-looking statements included in this document should not be unduly relied upon. These statements speak only as of the date of this document.

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